Massive drop in full-time jobs

By Chris Zappone

The economy lost 44,000 full-time jobs in December as companies reduce payrolls to brace for a possible recession.

The unemployment rate rose to 4.5% from 4.4% in November, as home loans, construction activity, and business confidence drops.

Full-time employment dropped by 44,000 to 7,640,200 while part-time positions soared 42,800 to 3,102,200, bringing the net loss of jobs to 1200.

Economists had expected 20,000 jobs to be shed last month, but the biggest monthly drop in full-time positions since March 2003 came as a surprise.

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"The massive decline in full-time employment, down nearly 44,000, is a big worry,'' said economist Matt Robinson of Moody's Economy.com. "Even with offsetting force of part-time employment.''

"It shows weakness in job security and workers having their hours cut back. It's a real shift in employers' behaviour.''

The Australian dollar lost as much as a quarter of a US cent to 65.76 US cents after the numbers were published, but climbed back to near 66 US cents around noon.

Westpac senior economist Anthony Thompson said the numbers may mask businesses holding on to employees as they entered the holidays.

“Because the labour market was coming from a position of historical tightness,” he said, “employers would initially be reluctant to let staff go altogether and would start by reducing the number of hours worked.”

The resilience in part-time numbers was “probably retailers holding onto staff in December, given that that’s when the all the fiscal handouts were given by the government.”

“The risk … is that if that impetus to spending fades very quickly in the first half of 2009, then you will start to see those part-time jobs cut as well.”

“I do think the pace of deterioration of the labour market, while it’s gradual at the moment, is going to gather pace.”

Mr Thompson expects the unemployment rate to hit 6% by the end of the year.

The labour force shrank by 1200 positions, seasonally adjusted, after a loss of a revised 16,200 jobs in November.

While total employment numbers rose to 10,749,400, economists took the figures as a harbinger of future bad news.

Mr Henderson said NabCapital expects unemployment to reach 6% by the end of the year, with a monthly increase of 0.1 to 0.2 percentage points.

JPMorgan is predicting an even worse development on the jobs market.

"Leading indicators of employment in Australia, such as the ANZ job advertisement series and the employment component of the NAB Business Survey, recently have collapsed, signalling that labour market conditions will deteriorate further," JPMorgan economist Helen Kevans said.

"We are forecasting a deep labour market adjustment that will result in employment falling 1% during the current recession."

The investment bank estimates Australia has already fallen into a recession. Gross domestic product grew by 0.1% in the September quarter, seasonally adjusted, the weakest pace since December 2000.

However, recent drops in housing approvals and a halving of the surplus have prompted several analysts to mark down expectations for fourth-quarter GDP growth, with a few expecting a contraction for the final three months of last year.

"Our estimates also show that the jobless rate will double to 9% by the end of 2010 - a more benign outcome than during Australia's last two recessions in the early 1980s and early 1990s when the jobless rate ventured into double digit territory,"

Ms Kevans said. "This call is supported by the avalanche of job losses announced recently."

Yesterday, Ford Credit Australia said it would cut 160 staff as it exited the retail car finance industry. The losses come after retrenchments announced by GE Money and GMAC Australia, ANZ Bank, Qantas, and GM Holden.

The mining sector, too, critical to Australia's growth, has been cutting back workers in recent months. Since November 1400 people have lost their jobs in mining and mining related jobs in Queensland alone.

Rio Tinto has announced 15,000 job cuts worldwide and has postponed mining projects in NSW costing 346 jobs, while coal miner Xstrata has chopped about 380 workers from over the past two months.

The slumping jobs numbers suggest the Reserve Bank's rate cuts of last year, along with the government's $10.4 billion stimulus package still have some way to go before they kick in, providing the boost needed by consumers and business to keep the economy expanding through a period of sluggishness.

A rising unemployment number puts more pressure on the RBA to cut the interest rate again when it next meets in February, after the central bank already lopped off three full percentage points in the last four months of 2008 in an effort to juice growth.

"I think the Reserve Bank will take some solace that the fall in employment was so small," said ANZ economist Alex Joiner.

"But that said, the unemployment rate is rising and that's something they would probably try to avoid.''

Most economists are expecting a fairly aggressive cut in February, he said.

"Our current stance is to see a 50 basis point cut in February.''

A Bloomberg survey forecasts a 50 basis point cut in the cash rate in February, which would bring the interest rate to 3.75%.

The market is expecting an even bigger cut of 0.75 percentage point rate cut in February to the cash rate, according to Credit Suisse.